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Thursday, April 28, 2016

The Bomb Is Ticking

In The Global Bond Market

"Bond investors are taking bigger risks than ever before. Yields on $7.8 trillion of government bonds have been driven below zero by worries over global growth, meaning money managers looking for income are pouring into debt with maturities of as long as 100 years. Central banks’ policy is exacerbating matters, as the unprecedented debt purchases to spur their economies have soaked up supply and left would-be buyers with few options. While demand has shown few signs of abating, investors are setting themselves up for damaging losses if average yields rise even a little from their rock-bottom levels. Based on a metric called duration,a half-percentage point increase would result in a loss of about $1.6 trillion in the global bond market, according to calculations based on data compiled by Bank of America CorpThe effective duration of the global bond market, which is measured in years and determines how much prices are likely to change when interest rates move, surged to an all-time high of 6.84 years in April. That translates into a 6.84 percent decline in price for every percentage-point increase in yields."- David Stockman*LINK HERE to the essay

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